Turnover threshold reduced for TReDS

The Indian Union Budget 2024 has brought significant changes for Micro, Small, and Medium enterprises (MSMEs), focussing on increasing their financial accessibility and operational flexibility. One of the key reforms is the reduction in the turnover threshold for mandatory onboarding on the Trade Receivables Discounting System (TReDS) platform. This change lowers the requirement from ?500 crore to ?250 crore, allowing more businesses to participate in this digital invoice discounting system.

Expanding TReDS participation

The TReDS platform plays a crucial role for MSMEs as it facilitates easier access to working capital by enabling businesses to convert their trade receivables into cash without needing collateral. With the reduced turnover threshold, an estimated 7,000 additional companies and 22 public sector undertakings (PSUs) can now join the platform. This broader participation is expected to enhance liquidity for MSMEs and streamline cash flow management.

Benefits of the revised threshold

By lowering the threshold, the government aims to foster a more inclusive financial environment for smaller enterprises. This initiative will not only help MSMEs improve their cash flow but also reduce the financial burden of high-interest loans. Enhanced participation on the TReDS platform means that more businesses can secure timely payments, leading to better financial health and operational efficiency.

The impact of these changes is expected to extend beyond immediate financial relief. By facilitating smoother cash flow and more predictable payment cycles, MSMEs can plan and execute business strategies more effectively, contributing to overall economic resilience and growth. This shift aligns with the government's broader objectives to enhance the operational landscape for MSMEs, which are vital to India’s economic ecosystem.

Complementary financial measures

The Union Budget also includes several other measures to support MSMEs. A new credit guarantee scheme has been proposed to help manufacturing MSMEs secure loans for equipment and machinery. This scheme is designed to reduce financial barriers and encourage investment, potentially driving growth in the sector.

Additionally, the budget has increased the Mudra loan limit from ?10 lakh to ?20 lakh under the 'Tarun' category, providing more substantial support for businesses looking to expand or undertake larger projects. This initiative rewards responsible borrowers and encourages financial discipline while supporting business growth.

?Modernising credit assessment

To further support MSMEs, the budget introduces modern methods for credit assessment. Public sector banks will now use digital footprint scoring to evaluate MSME creditworthiness, moving away from traditional external evaluations. This change is expected to make it easier for a wider range of MSMEs to access credit, particularly those lacking formal accounting systems.

Enhancing digital infrastructure

The government has also emphasised enhancing digital infrastructure to support MSMEs. By investing in technology and digital tools, the government aims to create a more robust and resilient business environment. This includes initiatives to promote digital literacy among small business owners and integrate digital solutions into their operations.

Conclusion

The reduction in the turnover threshold for TReDS registration marks a significant step towards empowering MSMEs in India. By broadening access to the platform, the government is facilitating better cash flow management and encouraging financial stability across the sector. These reforms, combined with additional financial support measures, are set to bolster MSMEs' ability to thrive in a competitive economic landscape. These efforts reflect a broader strategy to integrate MSMEs more fully into the digital economy, ensuring their continued growth and success in an increasingly interconnected world.

These measures collectively demonstrate the government's commitment to strengthening the backbone of India's economy. By addressing both immediate financial challenges and long-term growth opportunities, the budget provisions aim to enhance the competitive edge of Indian MSMEs on both national and global platforms.